Securities Fraud

Securities Fraud Overview

Security fraud involves deceptive practices, illegal activities and manipulation of the securities and commodities markets. Markets, investors and third parties may be harmed in these frauds. 

Securities Fraud May Be Committed by Companies or Individual:
Individuals and/or businesses may commit securities fraud:

  • Stockbrokers
  • Commodity brokers
  • Brokerage firms
  • Investment banks

Areas Of Securities Fraud:

Securities fraud is a general term that reaches numerous areas, including:

  • Commodities fraud
  • Mutual funds fraud
  • Annuities fraud
  • Bond fraud
  • Insider trading
  • High yield investment fraud
  • Broker embezzlement
  • Hedge fund fraud
  • Foreign currency fraud
  • Ponzi schemes
  • Pyramid schemes
  • Advanced fee schemes
  • Late day trading

High Yield Investment Fraud

  • High yield investment fraud, according to the FBI, promises generous risk-free rates of return
  • Investments may involve many forms, including commodities, securities, Real Estate, precious metals and others
  • Sellers often target and induce unsuspecting investors via email, phone calls or in person.

Ponzi Schemes:

  • Ponzi schemes are considered a form of security fraud, according to the FBI
  • In a Ponzi scheme, there is no actual product or business; all funding comes from new investors
  • New investor’s money is used to pay the former investors
  • High return rates are paid to investors in an attempt to induce additional investors


  • When a broker or dealer sells money-losing securities to the client’s accounts, stuffing has occurred
  • Losses are suffered by the client
  • The broker or dealer acts with awareness and intention
  • Stuffing may be difficult to prove because brokers and dealers often have discretion to purchase securities and commodities on behalf of their clients

Examples of Complaints Against Stockbrokers:

  • Stockbrokers may be accused of various types of misconduct, including:
  • Excessive trading
  • Insider trading
  • Trading without specific permission
  • Misrepresentation of information pertaining to stock
  • Malfeasance, malpractice, ineptitude
  • Excessive risk-taking and lack of caution

Certified Fraud Examiner:

  • The Association of Certified Fraud Examiners is the largest anti-fraud organization
  • Professional certification gives the Certified Fraud Examiner authority to examine, based on a strict application process and a thorough examination procedure

Penalties for Securities Fraud

  • Securities fraud carries criminal and/or civil penalties
  • The Securities and Exchange Commission, as well as The National Association of Securities Dealers both have the authority to investigate securities fraud allegations

Securities fraud often involves:

A. Insider trading – utilizing information or data that is not available to the public at large to buy, sell, trade

B. Accounting fraud – falsification of monetary values, company assets

C. Misrepresentation – providing inaccurate, false or misleading information


  • Sentences of 5, 10 and 20 years – per count - are provided under federal law
  • Fines: $10,000 - $5 million, depending on circumstances

Remedies for Defrauded Investors Include:

Defrauded investors may seek compensation in civil lawsuits, citing the following:

  • Breach of fiduciary duty
  • Breach of contract
  • Negligence and malpractice
  • Fraud
  • Misrepresentation

Calculating Damages for Securities Fraud:

Damages may be calculated in various ways and may include a combination of approaches, including:

  • Lost profits
  • Compensatory damages
  • Attorney’s fees
  • Arbitration costs
  • Punitive damages

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Michael S. Berg
Attorney At Law